Case Law Summaries

Caruso v. Ravenswood Developers, Inc.

• Opinion Date: March 1, 2001
• Real Property Law
• E-Mail

ARBITRATION; CONTRACTS; CONSUMER FRAUD ACT—When a contract provides for broad arbitration, even consumer fraud claims and RICO claims can be heard by the arbitrator.

A couple contracted for the construction of a home. The contract provided all disputes would be resolved through arbitration. Nonetheless, in the matter before the Court, the couple insisted that it retained the right to pursue a specific performance remedy in Superior Court. The relevant clause provided as follows: “[a]ny dispute arising in connection with this Agreement and/or any amendments to this Agreement, either before or after closing of title, shall be heard and determined by arbitration at the offices of the American Arbitration Association subject to the Buyer’s right to appeal for specific performance of the Contract in the event of the Seller’s negligent and/or arbitrary and/or willful refusal to close title.” According to the home buyers, the contractor’s principal constantly grumbled that he could get substantially more money for the house, and they were informed by a third party that the contractor was trying to find a way to get out of the deal. When the contractor told the home buyers that he would cancel the contract unless they paid a substantial additional sum, they refused, and he then informed them that the contract was canceled. The home buyers filed a complaint in Superior Court for specific performance of the contract. They also filed an amendment complaint seeking damages for breach of contract and consumer fraud. In addition, they applied for an order to enjoin further construction in non-conformance with the plans. That application was denied, and the lower court action was stayed, pending arbitration of the damage claims. Arbitration proceedings began, and the attorneys for the two parties agreed that a consumer fraud claim was not subject to arbitration. Such a claim was filed, and the contractor then moved to dismiss the newly filed complaint on the basis that the claim was subject to arbitration. The lower court referred the consumer fraud action and a RICO claim to arbitration. In doing so, the lower court found the language of the arbitration clause to be broad and that it encompassed all disputes and remedies, contractual and statutory, flowing from those disputes. The arbitrator found the contractor in breach and entered a monetary award. The consumer fraud and RICO claims were denied. The award was confirmed by the lower court, and the homeowners appealed the earlier order that referred the consumer fraud and RICO claims to arbitration. The Appellate Division, after reviewing the text and history of the Consumer Fraud Act and RICO, found no support for the position promoted by the homeowner that neither statutory claim was amenable to arbitration. In fact, a prior state court case held that Consumer Fraud Act violations may be heard and resolved in arbitration, and a U.S. District Court matter held the same for the state’s RICO statute. The homeowners claimed that there was a “distinction between claims controlled by the terms of the contract and claims arising out of statutes.” The Court disagreed, holding that the focus remained on the facts underlying the claims, and in this case, the “consumer fraud and RICO claims [were] founded on facts no different than the breach of contract claims submitted to the arbitrator.”

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